Conference Call

It was unfortunate that I did not have time to read through the financial information and tune in to the live version of the earnings call this morning. I did however listen to the recorded version and ponder a little at what I heard...

The commentary is simply a summary of the financial information in the quarterly report along with key milestones or events. I did not find anything that was said about Pennsaid to be of much value.

I did find it encouraging that Pliaglis has been approved in 14 EU countries with another 2 expected later in 2013 and that the company expects that $2 million milestone payment for approval in a 2nd South American country in Q4 2013.

Synera is still not producing results of any significance although management did say they were have some promising discussions (what ever that means) and were engaged in two Synera studies (no idea what/why). There is an initiative underway to get the labeling changed (remove "not for home use" condition) and if my notes are correct the study will be submitted to the FDA in Q2 2013 and it will take 4 months for a response.

Nothing much new on WF10 - they are still doing pre-clinical testing before entering into another Phase 2 test.

On the financial results no more shares to the Zars shareholders and the write down of the asset value relating to the Zars products and Goodwill on the balance sheet. There were additional comments comparing quarters and year end results but I found it confusing and difficult to understand exactly what is happening.

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Question time

The first question was how Galderma intended to market Pliaglis and after some initial confusion it became evident that Nuvo has some general conceptual idea but doesn't have a clue to any of the details.

On Pennsaid it is apparent that Covidien will be employing a Switch Strategy to immediately get their sales staff out of promoting (?) Pennsaid and into Pennsaid 2% immediately.

When asked about Q1 sales of Pennsaid the answer was "tracking Q4 run rate" [whatever that means;i.e. are sales following the Q4 downtrend are they flat with Q4 etc.]

Management was asked about expected sales of Pliaglis. Quite frankly they could not answer that question and referred back to Galderma needing 4-5 months to see how scripts are going before providing any guidance. Mr London indicated that Galderma are very conservative [So your guess is as good as theirs].

Another key question was asked about when the company would become profitable. They are currently burning cash at the rate of $750k/month and the company could be profitable in 2014.Mr London was quick to point out that that was based on increasing sales of Pliaglis (which they don't have any idea about) sales of Pennsaid (apparently not much insight there either), R & D spending around new product development (vague about this as well) etc [in other words if we get there we get there - in might happen in 2014].

Thanks to Robin for asking about bonuses for 2012 and her commentary on the two CEOs. Let's be perfectly clear - Mr. London did not answer her question about whether bonuses were being paid for 2012. He defended the co-CEOs as being very versatile doing multiple jobs that would otherwise cost manpower and $s to staff. In particular he mentioned specifically Investor Relations and Business Development roles. [An unfortunate choice I am afraid. In my humble opinion Nuvo has poor investor relations and the area that has hurt the company the most are in the deals that have been done - Covidien and the Zars acquisition].

John did say that the independent board members decide compensation and while Robin had more than 4 million shares and suggested an investor representative on the Board might be the way to go Mr London was quick to point out that all Board members were investors. [That is true. It is however also a fact that the neither of the co-CEOs hold as many shares as Robin and six Board members hold less than 600,000 shares; much less than what I hold. Further Robin would have purchased her shares at market I wonder how many of the shares owned by the Directors were purchase at market and how many through company plans, options and the redeeming of debentures. Sorry Dr. Messier but I can't help but point out your commitment to the company based on the $47.50 you have currently invested in shares - 950 @ $0.05/share]

There are 11 Directors of the company 8 are employed by Nuvo and I believe would be considered insiders.The two heavy weights Copeland and Dobranowski have the dubious distinction of being on the Board of companies that have failed - the former on two.

Most of the R & D being done is either in support of WF10 development or to Synera marketing.

A comment was made about Covidien "owning" Pennsaid and Pennsaid 2%. I was very disturbed by that remark as I have always contended that Nuvo might be able to sell the manufacturing plant and rights to another company once the FDA approves Pennsaid 2%. [I will follow that comment up and get clarification].

The last significant question was whether or not the company was planning on issuing anymore equity. The answer - no, well maybe and only if we can't do something that isn't dilutive. Apparently it is ok to borrow money at 15% and that was an under market rate.

Comments

It is pretty clear that management doesn't have much control or information about what their partners are doing marketing Pliaglis and Pennsaid - certainly nothing they would share.

There is no commitment to get to positive cash flow.

One of management's great strengthens was back in the day when they focused all their efforts in getting FDA approval of Pennsaid. The Zars deal might yet be profitable but having taken the write off it is looking more and more like the share dilution and share price decline were the price existing shareholders paid for management's misstep. Synera has been a marketing disaster - to loose all the Pliaglis milestone money is criminal. Personally we would have been farther ahead to offer Zars financing like Nuvo accepted at 15% annual interest rate. When they came up short it would have been Nuvo that swooped in for the kill instead of Paladin Labs.

Finally let's talk about leadership. When JFK said that the US would land a man on the moon by the end of the decade he didn't bring out a contingency list or couch everything in legalese. When Nuvo management speaks there is never a straight answer and that makes investors very uncomfortable. For instance when asked about the possibility of issuing stock the answer should have been - we have no intention at this point in time PERIOD. Yes things can change - everyone knows that, but you don't have to say it because it sounds like you are waffling and have a secret agenda.

I want to know that the management of this company has a plan and is confident they will get there. Instead we have a couple of career VPs that look like they are in over their heads when it comes to running and leading a company. We are paying for two CEOs not a part-time investor relations or business development manager.